EGBs-GILTS CASH CLOSE: Unexpected PMI Jump Sinks Gilts

Strong PMIs - particularly on the services side - saw European bonds sell off Tuesday, with Gilts easily underperforming.

• UK short-end/belly yields rose sharply following the 53.0 Composite prelim PMI print for February (vs a contractionary 49.0 expected), which bear flattened the curve amid reconsideration of the BoE hiking path.
• A 25bp March BoE hike became fully priced for the first time since last week's UK CPI print, while the implied terminal rate jumped 17bp to 4.64%.
• The bearish move in EGBs following above-consensus German/French prints in the morning was exacerbated in the afternoon by a much-better-than-expected US PMI print. Implied terminal ECB depo rates hit a new cycle high of 3.78%, up 6bp on the session.
• The more hawkish ECB outlook, and weakness in risk assets more broadly, saw BTP spreads widen nearly 7bp, underperforming on the periphery.
• Attention first thing Wednesday is on final German CPI - preview here.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 5.1bps at 2.949%, 5-Yr is up 6.4bps at 2.602%, 10-Yr is up 6.5bps at 2.529%, and 30-Yr is up 5.4bps at 2.463%.
• UK: The 2-Yr yield is up 17.3bps at 3.919%, 5-Yr is up 17.6bps at 3.56%, 10-Yr is up 14.3bps at 3.614%, and 30-Yr is up 11.1bps at 4.009%.
• Italian BTP spread up 6.8bps at 193.7bps / Spanish up 2.6bps at 99bps